New pay rules could be 'unworkable'

The leaders of Britain's biggest companies have warned that the Government's
flagship pay rules are "unworkable" just two days before they come
into effect.

A survey of FTSE 100 and FTSE 250 chairmen, chief executives and directors found that nearly 60pc had deep reservations about the practical implications of the rules and feared they could trigger unintended consequences.Photo: Alamy

A survey of FTSE 100 and FTSE 250 chairmen, chief executives and directors found that nearly 60pc had deep reservations about the practical implications of the rules and feared they could trigger unintended consequences. Almost half of the fund managers surveyed by Hedley May, the headhunters, also said the new system was unworkable.

The results are a blow for the Government, which is enforcing the rules from Oct 1 after more than a year of consultations. Under the rules, shareholders will be given a binding vote on company pay policies for the first time.

Once agreed, companies cannot change the policy without a special meeting to consult shareholders first. Directors who authorise payments without investor approval will be personally liable under the law. The framework was designed to give investors more influence after the "Shareholder Spring" of investor pay revolts two years ago.

The survey found neither bosses nor investors believed the rules were appropriate. Deborah Warburton, of Hedley May, said: "Under the rules, once the pay policy [is settled] there is no flexibility and so not enough room for judgment over exit payment or joining policies."

She said companies with a bonus policy of two times salary may decide to boost the ratio to allow discretion without calling a shareholder meeting.

Tom Gosling, head of reward practice at PricewaterhouseCoopers, said: "There have been unintended consequences. For example, shareholders are worried they will be deluged with consultation that they do not really have the resources to deal with."